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EX-10.1 - EX-10.1 - GREENBRIER COMPANIES INCd76448dex101.htm
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EX-31.1 - EX-31.1 - GREENBRIER COMPANIES INCd76448dex311.htm
EX-31.2 - EX-31.2 - GREENBRIER COMPANIES INCd76448dex312.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Form 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended November 30, 2015

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from                      to                     

Commission File No. 1-13146

 

 

THE GREENBRIER COMPANIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Oregon   93-0816972

(State

of Incorporation)

 

(I.R.S. Employer

Identification No.)

One Centerpointe Drive, Suite 200, Lake Oswego, OR   97035
(Address of principal executive offices)   (Zip Code)

(503) 684-7000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

The number of shares of the registrant’s common stock, without par value, outstanding on December 31, 2015 was 28,596,821 shares.

 

 

 


THE GREENBRIER COMPANIES, INC.

 

Forward-Looking Statements

From time to time, The Greenbrier Companies, Inc. and its subsidiaries (“Greenbrier” or “the Company”) or their representatives have made or may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements as to expectations, beliefs and strategies regarding the future. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by us with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and include statements relating to:

 

    availability of financing sources and borrowing base for working capital, other business development activities, capital spending and leased railcars for syndication (sale of railcars with lease attached);

 

    ability to renew, maintain or obtain sufficient credit facilities and financial guarantees on acceptable terms;

 

    ability to utilize beneficial tax strategies;

 

    ability to grow our businesses;

 

    ability to obtain lease and sales contracts which provide adequate protection against attempted modifications or cancellations, changes in interest rates and increased costs of materials and components;

 

    ability to obtain adequate insurance coverage at acceptable rates;

 

    ability to convert backlog of railcar orders and lease syndication commitments;

 

    ability to obtain adequate certification and licensing of products; and

 

    short-term and long-term revenue and earnings effects of the above items.

The following factors, among others, could cause actual results or outcomes to differ materially from the forward-looking statements:

 

    fluctuations in demand for newly manufactured railcars or marine barges;

 

    fluctuations in demand for wheels, repair services and parts;

 

    delays in receipt of orders, risks that contracts may be canceled or modified during their term, not renewed, unenforceable or breached by the customer and that customers may not purchase the amount of products or services under the contracts as anticipated;

 

    ability to maintain sufficient availability of credit facilities and to maintain compliance with or to obtain appropriate amendments to covenants under various credit agreements;

 

    domestic and global economic conditions including such matters as embargoes or quotas;

 

    global political or security conditions in the U.S., Europe, Latin America and the Middle East including such matters as terrorism, war, civil disruption and crime;

 

    sovereign risk related to international governments that includes, but is not limited to, governments stopping payments, repudiating their contracts, nationalizing private businesses and assets or altering foreign exchange regulations;

 

    growth or reduction in the surface transportation industry;

 

    ability to maintain good relationships with our labor force, third party labor providers and collective bargaining units representing our direct and indirect labor force;

 

    ability to maintain good relationships with our customers and suppliers;

 

    ability to renew or replace expiring customer contracts on satisfactory terms;

 

    ability to obtain and execute suitable contracts for leased railcars for syndication;

 

    steel and specialty component price fluctuations and availability, scrap surcharges, steel scrap prices and other commodity price fluctuations and availability and their impact on product demand and margin;

 

    delay or failure of acquired businesses or joint ventures, assets, start-up operations, or new products or services to compete successfully;

 

    changes in product mix and the mix of revenue levels among reporting segments;

 

2


THE GREENBRIER COMPANIES, INC.

 

    labor disputes, energy shortages or operating difficulties that might disrupt operations or the flow of cargo;

 

    production difficulties and product delivery delays as a result of, among other matters, costs or inefficiencies associated with expansion, start-up, or changing of production lines or changes in production rates, equipment failures, changing technologies, transfer of production between facilities or non-performance of alliance partners, subcontractors or suppliers;

 

    lower than anticipated lease renewal rates, earnings on utilization based leases or residual values for leased equipment;

 

    discovery of defects in railcars or services resulting in increased warranty costs or litigation;

 

    physical damage, business interruption or product or service liability claims that exceed our insurance coverage;

 

    commencement of and ultimate resolution or outcome of pending or future litigation and investigations;

 

    natural disasters or severe weather patterns that may affect either us, our suppliers or our customers;

 

    loss of business from, or a decline in the financial condition of, any of the principal customers that represent a significant portion of our total revenues;

 

    competitive factors, including introduction of competitive products, new entrants into certain of our markets, price pressures, limited customer base, and competitiveness of our manufacturing facilities and products;

 

    industry overcapacity and our manufacturing capacity utilization;

 

    decreases or write-downs in carrying value of inventory, goodwill, intangibles or other assets due to impairment;

 

    severance or other costs or charges associated with lay-offs, shutdowns, or reducing the size and scope of operations;

 

    changes in future maintenance or warranty requirements;

 

    ability to adjust to the cyclical nature of the industries in which we operate;

 

    changes in interest rates and financial impacts from interest rates;

 

    ability and cost to maintain and renew operating permits;

 

    actions or failures to act by various regulatory agencies including changing tank car or other rail car regulations;

 

    potential environmental remediation obligations;

 

    changes in commodity prices, including oil and gas;

 

    risks associated with our intellectual property rights or those of third parties, including infringement, maintenance, protection, validity, enforcement and continued use of such rights;

 

    expansion of warranty and product support terms beyond those which have traditionally prevailed in the rail supply industry;

 

    availability of a trained work force at a reasonable cost and with reasonable terms of employment;

 

    availability and/or price of essential raw materials, specialties or components, including steel castings, to permit manufacture of units on order;

 

    failure to successfully integrate joint ventures or acquired businesses;

 

    discovery of previously unknown liabilities associated with acquired businesses;

 

    failure of or delay in implementing and using new software or other technologies;

 

    the impact of cybersecurity risks and the costs of mitigating and responding to a data security breach;

 

    ability to replace maturing lease and management services revenue and earnings with revenue and earnings from new commercial transactions, including new railcar leases, additions to the lease fleet and new management services contracts;

 

    credit limitations upon our ability to maintain effective hedging programs;

 

    financial impacts from currency fluctuations and currency hedging activities in our worldwide operations;

 

    changes in legislation and increased costs related to health care; and

 

    fraud, misconduct by employees and potential exposure to liabilities under the Foreign Corrupt Practices Act and other anti-corruption laws and regulations.

 

3


THE GREENBRIER COMPANIES, INC.

 

Any forward-looking statements should be considered in light of these factors. Words such as “anticipates,” “believes,” “forecast,” “potential,” “goal,” “contemplates,” “expects,” “intends,” “plans,” “projects,” “hopes,” “seeks,” “estimates,” “strategy,” “could,” “would,” “should,” “likely,” “will,” “may,” “can,” “designed to,” “future,” “foreseeable future” and similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Many of the important factors that will determine these results and values are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements.

All references to years refer to the fiscal years ended August 31st unless otherwise noted.

 

4


THE GREENBRIER COMPANIES, INC.

 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Consolidated Balance Sheets

(In thousands, unaudited)

 

     November 30,
2015
    August 31,
2015
 

Assets

    

Cash and cash equivalents

   $ 197,633      $ 172,930   

Restricted cash

     9,818        8,869   

Accounts receivable, net

     237,213        196,029   

Inventories

     444,023        445,535   

Leased railcars for syndication

     238,911        212,534   

Equipment on operating leases, net

     252,641        255,391   

Property, plant and equipment, net

     307,196        303,135   

Investment in unconsolidated affiliates

     86,658        87,270   

Intangibles and other assets, net

     76,157        65,554   

Goodwill

     43,265        43,265   
  

 

 

   

 

 

 
   $ 1,893,515      $ 1,790,512   
  

 

 

   

 

 

 

Liabilities and Equity

    

Revolving notes

   $ 163,888      $ 50,888   

Accounts payable and accrued liabilities

     384,670        455,213   

Deferred income taxes

     63,483        60,657   

Deferred revenue

     42,351        33,836   

Notes payable

     324,668        326,429   

Commitments and contingencies (Note 12)

    

Equity:

    

Greenbrier

    

Preferred stock—without par value; 25,000 shares authorized; none outstanding

     —          —     

Common stock—without par value; 50,000 shares authorized; 28,597 and 28,907 shares outstanding at November 30, 2015 and August 31, 2015

     —          —     

Additional paid-in capital

     280,422        295,444   

Retained earnings

     522,182        458,599   

Accumulated other comprehensive loss

     (30,659     (21,205
  

 

 

   

 

 

 

Total equity – Greenbrier

     771,945        732,838   

Noncontrolling interest

     142,510        130,651   
  

 

 

   

 

 

 

Total equity

     914,455        863,489   
  

 

 

   

 

 

 
   $ 1,893,515      $ 1,790,512   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

5


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Income

(In thousands, except per share amounts, unaudited)

 

     Three Months Ended
November 30,
 
     2015     2014  

Revenue

    

Manufacturing

   $ 698,661      $ 379,949   

Wheels & Parts

     78,729        86,624   

Leasing & Services

     24,999        28,485   
  

 

 

   

 

 

 
     802,389        495,058   

Cost of revenue

    

Manufacturing

     533,033        316,037   

Wheels & Parts

     73,002        76,872   

Leasing & Services

     11,589        14,081   
  

 

 

   

 

 

 
     617,624        406,990   

Margin

     184,765        88,068   

Selling and administrative expense

     36,549        33,729   

Net gain on disposition of equipment

     (269     (83
  

 

 

   

 

 

 

Earnings from operations

     148,485        54,422   

Other costs

    

Interest and foreign exchange

     5,436        3,141   
  

 

 

   

 

 

 

Earnings before income taxes and earnings from unconsolidated affiliates

     143,049        51,281   

Income tax expense

     (44,719     (16,054
  

 

 

   

 

 

 

Earnings before earnings from unconsolidated affiliates

     98,330        35,227   

Earnings from unconsolidated affiliates

     383        755   
  

 

 

   

 

 

 

Net earnings

     98,713        35,982   

Net earnings attributable to noncontrolling interest

     (29,280     (3,196
  

 

 

   

 

 

 

Net earnings attributable to Greenbrier

   $ 69,433      $ 32,786   
  

 

 

   

 

 

 

Basic earnings per common share:

   $ 2.36      $ 1.19   

Diluted earnings per common share:

   $ 2.15      $ 1.01   

Weighted average common shares:

    

Basic

     29,391        27,665   

Diluted

     32,578        33,713   

Dividends declared per common share

   $ 0.20      $ 0.15   

The accompanying notes are an integral part of these financial statements

 

6


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Comprehensive Income

(In thousands, unaudited)

 

     Three Months Ended
November 30,
 
     2015     2014  

Net earnings

   $ 98,713      $ 35,982   

Other comprehensive income (loss)

    

Translation adjustment

     (3,967     (3,450

Reclassification of derivative financial instruments recognized in net earnings 1

     492        289   

Unrealized loss on derivative financial instruments 2

     (6,052     (306

Other (net of tax effect)

     —          (2
  

 

 

   

 

 

 
     (9,527     (3,469
  

 

 

   

 

 

 

Comprehensive income

     89,186        32,513   

Comprehensive income attributable to noncontrolling interest

     (29,207     (3,148
  

 

 

   

 

 

 

Comprehensive income attributable to Greenbrier

   $ 59,979      $ 29,365   
  

 

 

   

 

 

 

 

1  Net of tax effect of $0.2 million and $0.2 million for the three months ended November 30, 2015 and 2014.
2  Net of tax effect of $1.5 million and $0.4 million for the three months ended November 30, 2015 and 2014.

The accompanying notes are an integral part of these financial statements

 

7


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Equity

(In thousands, unaudited)

 

     Attributable to Greenbrier              
     Common
Stock
Shares
    Additional
Paid-in
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Total
Attributable
to
Greenbrier
    Attributable to
Noncontrolling
Interest
    Total
Equity
 

Balance September 1, 2015

     28,907      $ 295,444      $ 458,599      $ (21,205   $ 732,838      $ 130,651      $ 863,489   

Net earnings

     —          —          69,433        —          69,433        29,280        98,713   

Other comprehensive loss, net

     —          —          —          (9,454     (9,454     (73     (9,527

Noncontrolling interest adjustments

     —          —          —          —          —          262        262   

Purchase of noncontrolling interest

     —          —          —          —          —          (4     (4

Joint venture partner distribution declared

     —          —          —          —          —          (17,606     (17,606

Restricted stock awards (net of cancellations)

     212        (3,469     —          —          (3,469     —          (3,469

Unamortized restricted stock

     —          (603     —          —          (603     —          (603

Restricted stock amortization

     —          5,301        —          —          5,301        —          5,301   

Excess tax benefit from restricted stock awards

     —          2,827        —          —          2,827        —          2,827   

Cash dividends

     —          —          (5,850     —          (5,850     —          (5,850

Repurchase of stock

     (522     (19,078     —          —          (19,078     —          (19,078
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance November 30, 2015

     28,597      $ 280,422      $ 522,182      $ (30,659   $ 771,945      $ 142,510      $ 914,455   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Attributable to Greenbrier              
     Common
Stock
Shares
    Additional
Paid-in
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Total
Attributable
to
Greenbrier
    Attributable to
Noncontrolling
Interest
    Total
Equity
 

Balance September 1, 2014

     27,364      $ 235,763      $ 282,559      $ (6,932   $ 511,390      $ 62,331      $ 573,721   

Net earnings

     —          —          32,786        —          32,786        3,196        35,982   

Other comprehensive income, net

     —          —          —          (3,421     (3,421     (48     (3,469

Noncontrolling interest adjustments

     —          —          —          —          —          12,952        12,952   

Joint venture partner distribution declared

     —          —          —          —          —          (2,147     (2,147

Restricted stock cancellations

     (96     (1,936     —          —          (1, 936     —          (1, 936

Unamortized restricted stock

     —          1, 936        —          —          1, 936        —          1, 936   

Restricted stock amortization

     —          3,411        —          —          3,411        —          3,411   

Excess tax benefit from restricted stock awards

     —          2,970        —          —          2,970        —          2,970   

Conversion of convertible notes

     1        25        —          —          25        —          25   

Cash dividends

     —          —          (4,170     —          (4,170     —          (4,170

Repurchase of stock

     (379     (23,107     —          —          (23,107     —          (23,107
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance November 30, 2014

     26,890      $ 219,062      $ 311,175      $ (10,353   $ 519,884      $ 76,284      $ 596,168   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

8


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

     Three Months Ended
November 30,
 
     2015     2014  

Cash flows from operating activities

    

Net earnings

   $ 98,713      $ 35,982   

Adjustments to reconcile net earnings to net cash used in operating activities:

    

Deferred income taxes

     3,019        607   

Depreciation and amortization

     12,974        12,050   

Net gain on disposition of equipment

     (269     (83

Stock based compensation expense

     5,301        3,411   

Noncontrolling interest adjustments

     262        12,952   

Other

     637        152   

Decrease (increase) in assets:

    

Accounts receivable, net

     (40,889     7,806   

Inventories

     (274     (67,642

Leased railcars for syndication

     (61,059     (54,732

Other

     (3,578     2,211   

Increase (decrease) in liabilities:

    

Accounts payable and accrued liabilities

     (77,605     (13,032

Deferred revenue

     (723     6,488   
  

 

 

   

 

 

 

Net cash used in operating activities

     (63,491     (53,830
  

 

 

   

 

 

 

Cash flows from investing activities

    

Proceeds from sales of assets

     41,353        2,073   

Capital expenditures

     (15,595     (31,314

Increase in restricted cash

     (949     (30

Cash distribution from unconsolidated affiliates

     616        —     

Investment in and advances to unconsolidated affiliates

     (1,866     (2,500
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     23,559        (31,771
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net change in revolving notes with maturities of 90 days or less

     113,000        15,000   

Proceeds from revolving notes with maturities longer than 90 days

     —          23,056   

Repayments of revolving notes with maturities longer than 90 days

     —          (4,610

Repayments of notes payable

     (1,761     (1,758

Debt issuance costs

     (4,493     —     

Decrease in restricted cash

     —          11,000   

Cash distribution to joint venture partner

     (17,654     (2,275

Repurchase of stock

     (20,203     (21,730

Dividends

     (105     —     

Excess tax benefit from restricted stock awards

     2,827        2,970   

Other

     (6     —     
  

 

 

   

 

 

 

Net cash provided by financing activities

     71,605        21,653   
  

 

 

   

 

 

 

Effect of exchange rate changes

     (6,970     (2,010

Increase (decrease) in cash and cash equivalents

     24,703        (65,958

Cash and cash equivalents

    

Beginning of period

     172,930        184,916   
  

 

 

   

 

 

 

End of period

   $ 197,633      $ 118,958   
  

 

 

   

 

 

 

Cash paid during the period for

    

Interest

   $ 4,058      $ 5,736   

Income taxes, net

   $ 48,349      $ 28,487   

Non-cash activity

    

Dividends declared and accrued in Accounts payable and accrued liabilities

   $ 5,745      $ 4,170   

Capital expenditures accrued in Accounts payable and accrued liabilities

   $ 5,931      $ 2,957   

Transfer from Leased railcars for syndication to Equipment on operating leases, net

   $ 31,568      $ 3,313   

The accompanying notes are an integral part of these financial statements

 

9


THE GREENBRIER COMPANIES, INC.

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Interim Financial Statements

The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and Subsidiaries (Greenbrier or the Company) as of November 30, 2015 and for the three months ended November 30, 2015 and 2014 have been prepared without audit and reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the periods indicated. The results of operations for the three months ended November 30, 2015 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2016.

Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s 2015 Annual Report on Form 10-K.

Management Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.

Prospective Accounting Changes – In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) jointly issued a converged standard on the recognition of revenue from contracts with customers. The issued guidance converges the criteria for reporting revenue, and requires disclosures sufficient to describe the nature, amount, timing, and uncertainty of revenue and cash flows arising from these contracts. Companies can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. The FASB issued a one year deferral and the new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company plans to adopt this guidance beginning September 1, 2018. The Company is evaluating the impact of this standard as well as its method of adoption on its consolidated financial statements and disclosures.

In April 2015, the FASB issued Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). The FASB issued this update to simplify the presentation of debt issuance costs related to a recognized debt liability to present the debt issuance costs as a direct deduction from the carrying value of the debt liability rather than showing the debt issuance costs as an asset. The guidance is limited to the presentation of debt issuance costs and does not impact its recognition and measurement. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015, with early adoption permitted, and is required to be applied on a retrospective basis. The Company plans to adopt ASU 2015-03 beginning September 1, 2016. As the adoption of this new accounting standard will only amend presentation and disclosure requirements, the adoption will not affect the Company’s financial position, results of operations or cash flows.

Share Repurchase Program Since October 2013, the Board of Directors has authorized the Company to repurchase in aggregate up to $225 million of the Company’s common stock. The program may be modified, suspended or discontinued at any time without prior notice. Under the share repurchase program, shares of common stock may be purchased on the open market or through privately negotiated transactions from time-to-time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The share repurchase program does not obligate the Company to acquire any specific number of shares in any period.

During the three months ended November 30, 2015 and 2014, the Company purchased a total of 521,626 and 378,695 shares for approximately $19.1 million and $23.1 million, respectively. As of November 30, 2015 the Company had cumulatively repurchased 2,673,165 shares for approximately $123.7 million and had $101.3 million available under the share repurchase program with an expiration date of January 1, 2018.

 

10


THE GREENBRIER COMPANIES, INC.

 

Note 2 – Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market. Work-in-process includes material, labor and overhead. The following table summarizes the Company’s inventory balance:

 

(In thousands)    November 30,
2015
     August 31,
2015
 

Manufacturing supplies and raw materials

   $ 275,343       $ 311,880   

Work-in-process

     51,342         75,032   

Finished goods

     120,264         61,302   

Excess and obsolete adjustment

     (2,926      (2,679
  

 

 

    

 

 

 
   $ 444,023       $ 445,535   
  

 

 

    

 

 

 

Note 3 – Intangibles and Other Assets, net

Intangible assets that are determined to have finite lives are amortized over their useful lives. Intangible assets with indefinite useful lives are not amortized and are periodically evaluated for impairment.

The following table summarizes the Company’s identifiable intangible and other assets balance:

 

(In thousands)    November 30,
2015
     August 31,
2015
 

Intangible assets subject to amortization:

     

Customer relationships

   $ 64,504       $ 65,023   

Accumulated amortization

     (34,165      (33,828

Other intangibles

     5,959         3,422   

Accumulated amortization

     (3,204      (3,121
  

 

 

    

 

 

 
     33,094         31,496   

Intangible assets not subject to amortization

     912         912   

Prepaid and other assets

     17,021         13,111   

Nonqualified savings plan investments

     13,481         11,815   

Debt issuance costs, net

     7,252         3,823   

Assets held for sale

     4,397         4,397   
  

 

 

    

 

 

 

Total Intangible and other assets, net

   $ 76,157       $ 65,554   
  

 

 

    

 

 

 

Amortization expense for the three months ended November 30, 2015 and 2014 was $1.2 million and $0.9 million. Amortization expense for the years ending August 31, 2016, 2017, 2018, 2019 and 2020 is expected to be $4.6 million, $3.5 million, $3.4 million, $3.4 million and $3.4 million.

 

11


THE GREENBRIER COMPANIES, INC.

 

Note 4 – Revolving Notes

Senior secured credit facilities, consisting of three components, aggregated to $625.1 million as of November 30, 2015.

As of November 30, 2015, a $550.0 million revolving line of credit, maturing October 2020, secured by substantially all the Company’s assets in the U.S. not otherwise pledged as security for term loans, was available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this facility bear interest at LIBOR plus 1.75% or Prime plus 0.75% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.

As of November 30, 2015, lines of credit totaling $15.1 million secured by certain of the Company’s European assets, with various variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.3%, were available for working capital needs of the European manufacturing operation. European credit facilities are continually being renewed. Currently these European credit facilities have maturities that range from February 2016 through June 2017.

As of November 30, 2015, the Company’s Mexican joint venture has three lines of credit totaling $60.0 million. The first line of credit provides up to $10.0 million and is secured by certain of the joint venture’s accounts receivable and inventory. Advances under this facility bear interest at LIBOR plus 2.5%. The Mexican joint venture will be able to draw amounts available under this facility through June 2016. The second line of credit provides up to $30.0 million and is fully guaranteed by the Company and its joint venture partner. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican joint venture will be able to draw against this facility through January 2019. The third line of credit provides up to $20.0 million, of which the Company and its joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican joint venture will be able to draw amounts available under this facility through August 2017.

As of November 30, 2015, outstanding commitments under the senior secured credit facilities consisted of $80.1 million in letters of credit and $162.0 million in revolving notes under the North American credit facility and $1.9 million outstanding in revolving notes under the Mexican joint venture credit facilities.

As of August 31, 2015, outstanding commitments under the senior secured credit facilities consisted of $47.2 million in letters of credit and $49.0 million in revolving notes under the North American credit facility and $1.9 million outstanding in revolving notes under the Mexican joint venture credit facilities.

 

12


THE GREENBRIER COMPANIES, INC.

 

Note 5 – Accounts Payable and Accrued Liabilities

 

(In thousands)    November 30,
2015
     August 31,
2015
 

Trade payables

   $ 201,955       $ 263,665   

Other accrued liabilities

     70,440         64,584   

Accrued payroll and related liabilities

     57,576         70,836   

Accrued maintenance

     18,693         18,642   

Income taxes payable

     13,411         22,465   

Accrued warranty

     11,609         11,512   

Other

     10,986         3,509   
  

 

 

    

 

 

 
   $ 384,670       $ 455,213   
  

 

 

    

 

 

 

Note 6 – Warranty Accruals

Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty accruals, included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets, are reviewed periodically and updated based on warranty trends and expirations of warranty periods.

Warranty accrual activity:

 

     Three Months Ended
November 30,
 
(In thousands)    2015      2014  

Balance at beginning of period

   $ 11,512       $ 9,340   

Charged to cost of revenue, net

     1,421         647   

Payments

     (1,229      (974

Currency translation effect

     (95      (117
  

 

 

    

 

 

 

Balance at end of period

   $ 11,609       $ 8,896   
  

 

 

    

 

 

 

 

13


THE GREENBRIER COMPANIES, INC.

 

Note 7 – Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, net of tax effect as appropriate, consisted of the following:

 

(In thousands)    Unrealized
Loss on
Derivative
Financial
Instruments
     Foreign
Currency
Translation
Adjustment
     Other      Accumulated
Other
Comprehensive
Loss
 

Balance, August 31, 2015

   $ (2,194    $ (18,666    $ (345    $ (21,205

Other comprehensive loss before reclassifications

     (6,052      (3,894      —           (9,946

Amounts reclassified from accumulated other comprehensive loss

     492         —           —           492   
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, November 30, 2015

   $ (7,754    $ (22,560    $ (345    $ (30,659
  

 

 

    

 

 

    

 

 

    

 

 

 

The amounts reclassified out of Accumulated other comprehensive loss into the Consolidated Statements of Income, with presentation location, were as follows:

 

(In thousands)    Three Months Ended
November 30,
      
     2015      2014      Financial Statement Location

Loss on derivative financial instruments:

        

Foreign exchange contracts

   $ 267       $ 8       Revenue

Interest rate swap contracts

     445         456       Interest and foreign exchange
  

 

 

    

 

 

    
     712         464       Total before tax
     (220      (175    Tax expense
  

 

 

    

 

 

    
   $ 492       $ 289       Net of tax
  

 

 

    

 

 

    

 

14


THE GREENBRIER COMPANIES, INC.

 

Note 8 – Earnings Per Share

The shares used in the computation of the Company’s basic and diluted earnings per common share are reconciled as follows:

 

(In thousands)    Three Months Ended
November 30,
 
     2015      2014  

Weighted average basic common shares outstanding (1)

     29,391         27,665   

Dilutive effect of 2018 Convertible notes (2)

     3,177         6,044   

Dilutive effect of 2026 Convertible notes (3)

     —           4   

Dilutive effect of performance based restricted stock units (4)

     10         —     
  

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     32,578         33,713   
  

 

 

    

 

 

 

 

(1) Restricted stock grants and restricted stock units, including some grants subject to certain performance criteria, are included in weighted average basic common shares outstanding when the Company is in a net earnings position.
(2) The dilutive effect of the 2018 Convertible notes was included for the three months ended November 30, 2015 and 2014 as they were considered dilutive under the “if converted” method as further discussed below.
(3) The dilutive effect of the 2026 Convertible notes was excluded for the three months ended November 30, 2015 as the average stock price was less than $48.05 and therefore was considered anti-dilutive. The effect of the 2026 Convertible notes was included for the three months ended November 30, 2014 as the average stock price was greater than $48.05, as further described below.
(4) Restricted stock units that are subject to performance criteria, for which actual levels of performance above target have been achieved, are included in weighted average diluted common shares outstanding when the Company is in a net earnings position.

Dilutive EPS is calculated using the more dilutive of two approaches. The first approach includes the dilutive effect, using the treasury stock method, associated with shares underlying the 2026 Convertible notes and performance based restricted stock units that are subject to performance criteria, for which actual levels of performance above target have been achieved. The second approach supplements the first by including the “if converted” effect of the 2018 Convertible notes issued in March 2011. Under the “if converted” method, debt issuance and interest costs, both net of tax, associated with the convertible notes are added back to net earnings and the share count is increased by the shares underlying the convertible notes. The 2026 Convertible notes are included in the calculation of both approaches using the treasury stock method when the average stock price is greater than the conversion price of $48.05.

 

     Three Months Ended
November 30,
 
     2015      2014  

Net earnings attributable to Greenbrier

   $ 69,433       $ 32,786   

Add back:

     

Interest and debt issuance costs on the 2018 Convertible notes, net of tax

     496         1,416   
  

 

 

    

 

 

 

Earnings before interest and debt issuance costs on convertible notes

   $ 69,929       $ 34,202   
  

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     32,578         33,713   

Diluted earnings per share (1)

   $ 2.15       $ 1.01   

 

(1) Diluted earnings per share was calculated as follows:

Earnings before interest and debt issuance costs (net of tax) on convertible notes

Weighted average diluted common shares outstanding

 

15


THE GREENBRIER COMPANIES, INC.

 

Note 9 – Stock Based Compensation

The value of restricted stock and restricted stock unit awards is amortized as compensation expense from the date of grant through the earlier of the vesting period or the recipient’s eligible retirement date. Awards are expensed upon grant when the recipient’s eligible retirement date precedes the grant date.

Compensation expense for restricted stock and restricted stock unit grants was $5.3 million and $3.4 million for the three months ended November 30, 2015 and 2014, respectively. Compensation expense related to restricted stock and restricted stock unit grants is recorded in Selling and administrative expense and Cost of revenue on the Consolidated Statements of Income.

Note 10 – Derivative Instruments

Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk. Interest rate swap agreements are used to reduce the impact of changes in interest rates on certain debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses is recorded in accumulated other comprehensive income or loss.

At November 30, 2015 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euro and U.S. Dollar, and for the purchase of U.S. Dollars and the sale of Saudi Riyal aggregated to $458.8 million. The fair value of the contracts is included on the Consolidated Balance Sheets as Accounts payable and accrued liabilities when there is a loss, or as Accounts receivable, net when there is a gain. As the contracts mature at various dates through September 2018, any such gain or loss remaining will be recognized in manufacturing revenue along with the related transactions. In the event that the underlying sales transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the results of operations in Interest and foreign exchange at the time of occurrence.

At November 30, 2015, an interest rate swap agreement maturing in March 2020 had a notional amount of $94.8 million. The fair value of the contract is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from Accumulated other comprehensive loss and charged or credited to interest expense. At November 30, 2015 interest rates, approximately $1.7 million would be reclassified to interest expense in the next 12 months.

Fair Values of Derivative Instruments

 

     Asset Derivatives      Liability Derivatives  
          November 30,
2015
     August 31,
2015
          November 30,
2015
     August 31,
2015
 
(In thousands)    Balance sheet
location
   Fair
Value
     Fair
Value
     Balance sheet
location
   Fair
Value
     Fair
Value
 

Derivatives designated as hedging instruments

     

Foreign forward exchange contracts

   Accounts
receivable, net
   $ 6,940       $ 1,820       Accounts payable
and accrued liabilities
   $ 7,213       $ 737   

Interest rate swap contracts

   Intangibles and
other assets, net
     —           —         Accounts payable and
accrued liabilities
     2,514         2,393   
     

 

 

    

 

 

       

 

 

    

 

 

 
      $ 6,940       $ 1,820          $ 9,727       $ 3,130   
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivatives not designated as hedging instruments

     

Foreign forward exchange contracts

   Accounts
receivable, net
   $ 56       $ 93       Accounts payable and
accrued liabilities
   $ 108       $ 76   

 

16


THE GREENBRIER COMPANIES, INC.

 

The Effect of Derivative Instruments on the Statements of Income

 

Derivatives in cash flow hedging

relationships

   Location of gain (loss) recognized in
income on derivatives
     Gain (loss) recognized in income on
derivatives three months ended
November 30,
 
            2015      2014  

Foreign forward exchange contract

     Interest and foreign exchange       $ (186    $ 54   

Interest rate swap contracts

     Interest and foreign exchange         86         56   
     

 

 

    

 

 

 
      $ (100    $ 110   
     

 

 

    

 

 

 

 

Derivatives in cash flow hedging

relationships

   Gain (loss)
recognized in OCI on
derivatives (effective
portion)
three months ended
November 30,
    Location of
loss
reclassified
from
accumulated
OCI into
income
   Loss reclassified
from
accumulated OCI
into income
(effective
portion)
three months
ended
November 30,
    Location of
gain in
income on
derivative
(ineffective
portion and
amount
excluded from
effectiveness
testing)
   Gain recognized
on derivative
(ineffective
portion and
amount excluded
from
effectiveness
testing)
three months
ended
November 30,
 
     2015     2014          2015     2014          2015      2014  

Foreign forward exchange contracts

   $ (7,043   $ 600      Revenue    $ (267   $ (8   Revenue    $ 4,592       $ 494   

Interest rate swap contracts

     (592     (1,335   Interest and
foreign
exchange
     (445     (456   Interest and
foreign
exchange
     —           —     
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

    

 

 

 
   $ (7,635   $ (735      $ (712   $ (464      $ 4,592       $ 494   
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

    

 

 

 

Note 11 – Segment Information

Greenbrier operates in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. The results of GBW are included as part of Earnings from unconsolidated affiliates as the Company accounts for its interest in GBW under the equity method of accounting.

The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s 2015 Annual Report on Form 10-K. Performance is evaluated based on Earnings from operations. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. The Company does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin are eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.

The information in the following table is derived directly from the segments’ internal financial reports used for corporate management purposes. The results of operations for the GBW Joint Venture are not reflected in the tables below as the investment is accounted for under the equity method of accounting.

For the three months ended November 30, 2015:

 

     Revenue     Earnings (loss) from operations  
(In thousands)    External      Intersegment     Total     External     Intersegment     Total  

Manufacturing

   $ 698,661       $ —        $ 698,661      $ 153,704      $ —        $ 153,704   

Wheels & Parts

     78,729         6,816        85,545        3,403        684        4,087   

Leasing & Services

     24,999         6,709        31,708        9,958        6,709        16,667   

Eliminations

     —           (13,525     (13,525     —          (7,393     (7,393

Corporate

     —           —          —          (18,580     —          (18,580
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 802,389       $ —        $ 802,389      $ 148,485      $ —        $ 148,485   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

17


THE GREENBRIER COMPANIES, INC.

 

For the three months ended November 30, 2014:

 

     Revenue     Earnings (loss) from operations  
(In thousands)    External      Intersegment     Total     External     Intersegment     Total  

Manufacturing

   $ 379,949       $ 7,420      $ 387,369      $ 52,051      $ 786      $ 52,837   

Wheels & Parts

     86,624         6,911        93,535        7,932        784        8,716   

Leasing & Services

     28,485         13,184        41,669        11,042        13,184        24,226   

Eliminations

     —           (27,515     (27,515     —          (14,754     (14,754

Corporate

     —           —          —          (16,603     —          (16,603
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 495,058       $ —        $ 495,058      $ 54,422      $ —        $ 54,422   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Total assets  
     November 30,      August 31,  
(In thousands)    2015      2015  

Manufacturing

   $ 656,505       $ 675,409   

Wheels & Parts

     302,164         291,798   

Leasing & Services

     631,699         549,073   

Unallocated

     303,147         274,232   
  

 

 

    

 

 

 
   $ 1,893,515       $ 1,790,512   
  

 

 

    

 

 

 

Reconciliation of Earnings from operations to Earnings before income tax and earnings from unconsolidated affiliates:

 

     Three Months Ended
November 30,
 
(In thousands)    2015      2014  

Earnings from operations

   $ 148,485       $ 54,422   

Interest and foreign exchange

     5,436         3,141   
  

 

 

    

 

 

 

Earnings before income tax and earnings from unconsolidated affiliates

   $ 143,049       $ 51,281   
  

 

 

    

 

 

 

The results of operations for the GBW Joint Venture are accounted for under the equity method of accounting. The GBW Joint Venture is the Company’s fourth reportable segment and information as of November 30, 2015 and August 31, 2015 and for the three months ended November 30, 2015 and 2014 are included in the tables below.

 

     Three Months Ended
November 30,
 
(In thousands)    2015      2014  

Revenue

   $ 95,982       $ 82,542   

Earnings from operations

   $ 2,408       $ 258   
     Total Assets  
     November 30,
2015
     August 31,
2015
 

GBW (1)

   $ 245,741       $ 239,871   

 

(1)  Includes goodwill and intangible assets of $96.0 million and $96.9 million as of November 30, 2015 and August 31, 2015.

 

18


THE GREENBRIER COMPANIES, INC.

 

Note 12 – Commitments and Contingencies

The Company’s Portland, Oregon manufacturing facility is located adjacent to the Willamette River. The Company has entered into a Voluntary Cleanup Agreement with the Oregon Department of Environmental Quality (DEQ) in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland property may have released hazardous substances into the environment.

In December 2000, the U.S. Environmental Protection Agency (EPA) classified portions of the Willamette River bed known as the Portland Harbor, including the portion fronting the Company’s manufacturing facility, as a federal “National Priority List” or “Superfund” site due to sediment contamination (the Portland Harbor Site). The Company and more than 140 other parties have received a “General Notice” of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. At this time, ten private and public entities, including the Company (the Lower Willamette Group or LWG), have signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities have not signed such consent, but are nevertheless contributing money to the effort. The EPA-mandated RI/FS is being produced by the LWG and has cost over $110 million during a 15-year period. The Company has agreed to initially bear a percentage of the total costs incurred by the LWG in connection with the investigation. The Company’s aggregate expenditure has not been material during the 15-year period. Some or all of any such outlay may be recoverable from other responsible parties. The EPA expects the investigation to continue until 2017.

Eighty-three parties, including the State of Oregon and the federal government, have entered into a non-judicial mediation process to try to allocate costs associated with the Portland Harbor site. Approximately 110 additional parties have signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc. et al, U.S. District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has now been stayed by the court, pending completion of the RI/FS. Although, as described below, the draft feasibility study has been submitted, the RI/FS will not be complete until the EPA approves it, which is not likely to occur until at least 2016.

A draft of the remedial investigation study was submitted by the LWG to the EPA on October 27, 2009. The draft feasibility study was submitted to the EPA on March 30, 2012. That draft feasibility study evaluates several alternative cleanup approaches. The approaches submitted would take from 2 to 28 years with costs ranging from $169 million to $1.8 billion for cleanup of the entire Portland Harbor Site, depending primarily on the selected remedial action levels. The draft feasibility study suggests costs ranging from $9 million to $163 million for cleanup of the area of the Willamette River adjacent to the Company’s Portland, Oregon manufacturing facility, depending primarily on the selected remedial action level. In August 2015, the EPA released its own draft feasibility study that suggests a significantly higher range of site-wide costs (from $790 million to $2.4 billion) and clean-up durations ranging from 4 to 18 years. The EPA study does not break those costs down by sub-area. The EPA is currently revising its draft feasibility study.

Neither draft feasibility study addresses responsibility for the costs of clean-up, allocates such costs among the potentially responsible parties, or defines precise boundaries for the cleanup. Responsibility for funding and implementing the EPA’s selected cleanup will be determined after the issuance of the Record of Decision, currently scheduled by the EPA for 2017. Based on the investigation to date, the Company believes that it did not contribute in any material way to contamination in the river sediments or the damage of natural resources in the Portland Harbor Site and that the damage in the area of the Portland Harbor Site adjacent to its property precedes its ownership of the Portland, Oregon manufacturing facility. Because these environmental investigations are still underway, sufficient information is currently not available to determine the Company’s liability, if any, for the cost of any required remediation or restoration of the Portland Harbor Site or to estimate a range of potential loss. Based on the results of the pending investigations and future assessments of natural resource damages, the Company may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the Company may be required to perform periodic maintenance

 

19


THE GREENBRIER COMPANIES, INC.

 

dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the river’s classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect the Company’s business and Consolidated Financial Statements, or the value of its Portland property.

The Company has also signed an Order on Consent with the DEQ to finalize the investigation of potential onsite sources of contamination that may have a release pathway to the Willamette River. Interim precautionary measures are also required in the order and the Company is currently discussing with the DEQ potential remedial actions which may be required. Our aggregate expenditure has not been material, however the Company could incur significant expenses for remediation. Some or all of any such outlay may be recoverable from other responsible parties.

From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcome of which cannot be predicted with certainty. While the ultimate outcome of such legal proceedings cannot be determined at this time, management believes that the resolution of these actions will not have a material adverse effect on the Company’s Consolidated Financial Statements.

In accordance with customary business practices in Europe, the Company has $3.8 million in third party warranty guarantee facilities. To date no amounts have been drawn under these guarantee facilities.

As of November 30, 2015, the Mexican joint venture had $3.0 million of third party debt outstanding, for which the Company and its joint venture partner had each guaranteed approximately $1.5 million.

As of November 30, 2015, the Company had outstanding letters of credit aggregating $80.1 million associated with performance guarantees, facility leases and workers compensation insurance.

The Company made $0.6 million in cash contributions and $1.25 million in loans to GBW, an unconsolidated 50/50 joint venture with Watco, for the three months ended November 30, 2015. The Company expects to loan additional amounts of approximately $3.75 million during 2016. The Company is likely to make additional capital contributions or loans to GBW in the future. As of November 30, 2015, the Company had a $32.7 million note receivable balance from GBW which is included on the Consolidated Balance Sheet in Accounts receivable, net.

 

20


THE GREENBRIER COMPANIES, INC.

 

Note 13 – Fair Value Measures

Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

 

Level 1 —    observable inputs such as unadjusted quoted prices in active markets for identical instruments;
Level 2 —    inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and
Level 3 —    unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis as of November 30, 2015 were:

 

(In thousands)    Total      Level 1      Level 2 (1)      Level 3  

Assets:

           

Derivative financial instruments

   $ 6,996       $ —         $ 6,996       $ —     

Nonqualified savings plan investments

     13,481         13,481         —           —     

Cash equivalents

     5,074         5,074         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 25,551       $ 18,555       $ 6,996       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 9,835       $ —         $ 9,835       $ —     

 

(1) Level 2 assets and liabilities include derivative financial instruments that are valued based on observable inputs. See Note 10 Derivative Instruments for further discussion.

Assets and liabilities measured at fair value on a recurring basis as of August 31, 2015 were:

 

(In thousands)    Total      Level 1      Level 2      Level 3  

Assets:

           

Derivative financial instruments

   $ 1,913       $ —         $ 1,913       $ —     

Nonqualified savings plan investments

     11,815         11,815         —           —     

Cash equivalents

     5,071         5,071         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 18,799       $ 16,886       $ 1,913       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 3,206       $ —         $ 3,206       $ —     

 

21


THE GREENBRIER COMPANIES, INC.

 

Note 14 – Guarantor/Non-Guarantor

The convertible senior notes due 2026 (the “Notes”) issued on May 22, 2006 are fully and unconditionally and jointly and severally guaranteed by substantially all of Greenbrier’s material 100% owned U.S. subsidiaries: Autostack Company LLC; Greenbrier-Concarril, LLC; Greenbrier Leasing Company LLC; Greenbrier Leasing Limited Partner, LLC; Greenbrier Management Services, LLC; Greenbrier Leasing, L.P.; Greenbrier Railcar LLC; Gunderson LLC; Gunderson Marine LLC; Gunderson Rail Services LLC; Meridian Rail Holding Corp.; Meridian Rail Acquisition Corp.; Meridian Rail Mexico City Corp.; Brandon Railroad LLC; Gunderson Specialty Products, LLC; Greenbrier Railcar Leasing, Inc. and Greenbrier Rail Services Holdings, LLC. No other subsidiaries guarantee the Notes including Greenbrier Union Holdings I LLC; Greenbrier MUL Holdings I LLC; Greenbrier Leasing Limited; Greenbrier Europe B.V.; Greenbrier Europe Holdings B.V.; Greenbrier International Holdings II, LLC; Greenbrier Germany GmbH; WagonySwidnica S.A.; Zaklad Naprawczy Taboru Kolejowego Olawa sp. z o.o.; Zaklad Transportu Kolejowego SIARKOPOL sp. z o.o.; Gunderson-Concarril, S.A. de C.V.; Mexico Meridianrail Services, S.A. de C.V.; Greenbrier Railcar Services – Tierra Blanca S.A. de C.V.; YSD Doors, S.A. de C.V.; Greenbrier do Brasil Participações Ltda; Greenbrier Tank Components, LLC; Gunderson-GIMSA S.A. de C.V.; Greenbrier; S.A. de C.V.; Greenbrier Industries, S.A. de C.V. and Greenbrier-GIMSA, LLC.

The following represents the supplemental consolidating condensed financial information of Greenbrier and its guarantor and non-guarantor subsidiaries, as of November 30, 2015 and August 31, 2015, for the three months ended November 30, 2015 and 2014. The information is presented on the basis of Greenbrier accounting for its ownership of its wholly owned subsidiaries using the equity method of accounting. The equity method investment for each subsidiary is recorded by the parent in intangibles and other assets. Intercompany transactions of goods and services between the guarantor and non-guarantor subsidiaries are presented as if the sales or transfers were at fair value to third parties and eliminated in consolidation.

 

22


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Balance Sheet

November 30, 2015

(In thousands, unaudited)

 

     Parent      Combined
Guarantor
Subsidiaries
     Combined
Non-
Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

             

Cash and cash equivalents

   $ 46,071       $ 2,528       $ 149,034       $ —        $ 197,633   

Restricted cash

     —           2,914         6,904         —          9,818   

Accounts receivable, net

     7,366         420,870         40,725         (231,748     237,213   

Inventories

     —           256,401         199,708         (12,086     444,023   

Leased railcars for syndication

     —           242,050         —           (3,139     238,911   

Equipment on operating leases, net

     —           252,559         2,698         (2,616     252,641   

Property, plant and equipment, net

     8,520         102,437         196,239         —          307,196   

Investment in unconsolidated affiliates

     1,283,522         171,405         20,356         (1,388,625     86,658   

Intangibles and other assets, net

     20,626         51,211         15,944         (11,624     76,157   

Goodwill

     —           43,265         —           —          43,265   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,366,105       $ 1,545,640       $ 631,608       $ (1,649,838   $ 1,893,515   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and Equity

             

Revolving notes

   $ 162,000       $ —         $ 1,888       $ —        $ 163,888   

Accounts payable and accrued liabilities

     275,274         204,526         184,587         (279,717     384,670   

Deferred income taxes

     22,972         61,968         —           (21,457     63,483   

Deferred revenue

     —           37,577         —           4,774        42,351   

Notes payable

     133,914         189,661         1,093         —          324,668   

Total equity—Greenbrier

     771,945         1,051,908         301,839         (1,353,747     771,945   

Noncontrolling interest

     —           —           142,201         309        142,510   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     771,945         1,051,908         444,040         (1,353,438     914,455   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,366,105       $ 1,545,640       $ 631,608       $ (1,649,838   $ 1,893,515   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

23


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Income

For the three months ended November 30, 2015

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ 5,143      $ 371,845      $ 511,992      $ (190,319   $ 698,661   

Wheels & Parts

     —          79,081        —          (352     78,729   

Leasing & Services

     844        24,182        —          (27     24,999   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     5,987        475,108        511,992        (190,698     802,389   

Cost of revenue

          

Manufacturing

     —          297,538        425,466        (189,971     533,033   

Wheels & Parts

     —          73,342        —          (340     73,002   

Leasing & Services

     —          11,613        —          (24     11,589   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          382,493        425,466        (190,335     617,624   

Margin

     5,987        92,615        86,526        (363     184,765   

Selling and administrative

     16,415        9,086        10,923        125        36,549   

Net gain on disposition of equipment

     —          (156     1        (114     (269
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (10,428     83,685        75,602        (374     148,485   

Other costs

          

Interest and foreign exchange

     3,234        1,373        829        —          5,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates

     (13,662     82,312        74,773        (374     143,049   

Income tax (expense) benefit

     (4,743     (27,320     (12,583     (73     (44,719
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before earnings (loss) from unconsolidated affiliates

     (18,405     54,992        62,190        (447     98,330   

Earnings (loss) from unconsolidated affiliates

     87,838        1,974        (362     (89,067     383   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     69,433        56,966        61,828        (89,514     98,713   

Net (earnings) loss attributable to noncontrolling interest

     —          —          (29,542     262        (29,280
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 69,433      $ 56,966      $ 32,286      $ (89,252   $ 69,433   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the three months ended November 30, 2015

(In thousands, unaudited)

 

(In thousands)    Parent      Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net earnings (loss)

   $ 69,433       $ 56,966      $ 61,828      $ (89,514   $ 98,713   

Other comprehensive income (loss)

           

Translation adjustment

     —           —          (3,967     —          (3,967

Reclassification of derivative financial instruments recognized in net earnings (loss)

     —           276        216        —          492   

Unrealized loss on derivative financial instruments

     68         (366     (5,754     —          (6,052
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     68         (90     (9,505     —          (9,527
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     69,501         56,876        52,323        (89,514     89,186   

Comprehensive (income) loss attributable to noncontrolling interest

     —           —          (29,469     262        (29,207
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Greenbrier

   $ 69,501       $ 56,876      $ 22,854      $ (89,252   $ 59,979   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

25


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Cash Flows

For the three months ended November 30, 2015

(In thousands, unaudited)

 

(In thousands)    Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ 69,433      $ 56,966      $ 61,828      $ (89,514   $ 98,713   

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:

          

Deferred income taxes

     23,557        (10,358     (1,053     (9,127     3,019   

Depreciation and amortization

     656        7,151        5,191        (24     12,974   

Net gain on disposition of equipment

     —          (156     1        (114     (269

Stock based compensation expense

     5,301        —          —          —          5,301   

Noncontrolling interest adjustment

     —          —          —          262        262   

Other

     —          103        534        —          637   

Decrease (increase) in assets:

          

Accounts receivable, net

     42,106        200,971        (30,333     (253,633     (40,889

Inventories

     —          (64,776     56,125        8,377        (274

Leased railcars for syndication

     —          (52,932     —          (8,127     (61,059

Other

     (823     (3,086     (17,324     17,655        (3,578

Increase (decrease) in liabilities:

          

Accounts payable and accrued liabilities

     (226,275     (78,626     (22,257     249,553        (77,605

Deferred revenue

     —          (723     —          —          (723
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (86,045     54,534        52,712        (84,692     (63,491
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Proceeds from sales of assets

     —          41,353        —          —          41,353   

Capital expenditures

     (774     (3,668     (11,153     —          (15,595

Decrease (increase) in restricted cash

     —          (948     (1     —          (949

Cash distribution from unconsolidated affiliates

     616        —          —          —          616   

Investment in and net advances to unconsolidated affiliates

     (85,213     (1,345     —          84,692        (1,866
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (85,371     35,392        (11,154     84,692        23,559   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Net changes in revolving notes with maturities of 90 days or less

     113,000        —          —          —          113,000   

Repayments of notes payable

     —          (1,761     —          —          (1,761

Debt issuance costs

     (4,493     —          —          —          (4,493

Cash distribution to joint venture partner

     —          —          (17,654       (17,654

Intercompany advances

     72,857        (85,925     13,068        —          —     

Repurchase of stock

     (20,203     —          —          —          (20,203

Dividends

     (105     —          —          —          (105

Excess tax benefit from restricted stock awards

     2,827        —          —          —          2,827   

Other

     —          —          (6     —          (6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     163,883        (87,686     (4,592     —          71,605   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     69        169        (7,208     —          (6,970

Increase (decrease) in cash and cash equivalents

     (7,464     2,409        29,758        —          24,703   

Cash and cash equivalents

          

Beginning of period

     53,535        119        119,276        —          172,930   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 46,071      $ 2,528      $ 149,034      $ —        $ 197,633   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Balance Sheet

August 31, 2015

(In thousands)

 

     Parent      Combined
Guarantor
Subsidiaries
     Combined
Non-
Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

             

Cash and cash equivalents

   $ 53,535       $ 119       $ 119,276       $ —        $ 172,930   

Restricted cash

     —           1,966         6,903         —          8,869   

Accounts receivable, net

     49,471         535,916         24,415         (413,773     196,029   

Inventories

     —           191,625         257,619         (3,709     445,535   

Leased railcars for syndication

     —           228,646         —           (16,112     212,534   

Equipment on operating leases, net

     —           255,130         2,901         (2,640     255,391   

Property, plant and equipment, net

     8,402         102,738         191,995         —          303,135   

Investment in unconsolidated affiliates

     1,209,698         169,659         21,369         (1,313,456     87,270   

Intangibles and other assets, net

     15,895         46,387         14,235         (10,963     65,554   

Goodwill

     —           43,265         —           —          43,265   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,337,001       $ 1,575,451       $ 638,713       $ (1,760,653   $ 1,790,512   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and Equity

             

Revolving notes

   $ 49,000       $ —         $ 1,888       $ —        $ 50,888   

Accounts payable and accrued liabilities

     421,249         282,662         208,538         (457,236     455,213   

Deferred income taxes

     —           72,326         —           (11,669     60,657   

Deferred revenue

     —           33,792         —           44        33,836   

Notes payable

     133,914         191,422         1,093         —          326,429   

Total equity Greenbrier

     732,838         995,249         296,852         (1,292,101     732,838   

Noncontrolling interest

     —           —           130,342         309        130,651   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     732,838         995,249         427,194         (1,291,792     863,489   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,337,001       $ 1,575,451       $ 638,713       $ (1,760,653   $ 1,790,512   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

27


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Income

For the three months ended November 30, 2014

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 273,812      $ 365,746      $ (259,609   $ 379,949   

Wheels & Parts

     —          88,465        —          (1,841     86,624   

Leasing & Services

     (122     28,466        —          141        28,485   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (122     390,743        365,746        (261,309     495,058   

Cost of revenue

          

Manufacturing

     —          235,652        313,773        (233,388     316,037   

Wheels & Parts

     —          78,658        —          (1,786     76,872   

Leasing & Services

     —          14,105        —          (24     14,081   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          328,415        313,773        (235,198     406,990   

Margin

     (122     62,328        51,973        (26,111     88,068   

Selling and administrative

     15,788        7,695        10,111        135        33,729   

Net gain on disposition of equipment

     —          (83     —          —          (83
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (15,910     54,716        41,862        (26,246     54,422   

Other costs

          

Interest and foreign exchange

     2,985        1,606        (1,450     —          3,141   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates

     (18,895     53,110        43,312        (26,246     51,281   

Income tax (expense) benefit

     (1,210     (19,993     (4,825     9,974        (16,054
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before earnings (loss) from unconsolidated affiliates

     (20,105     33,117        38,487        (16,272     35,227   

Earnings (loss) from unconsolidated affiliates

     52,891        5,383        47        (57,566     755   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     32,786        38,500        38,534        (73,838     35,982   

Net (earnings) loss attributable to noncontrolling interest

     —          —          (16,148     12,952        (3,196
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 32,786      $ 38,500      $ 22,386      $ (60,886    $ 32,786   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Consolidating Statement of Comprehensive Income (Loss)

For the three months ended November 30, 2014

 

(In thousands)    Parent      Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net earnings (loss)

   $ 32,786       $ 38,500      $ 38,534      $ (73,838   $ 35,982   

Other comprehensive income (loss)

           

Translation adjustment

     —           —          (3,450     —          (3,450

Reclassification of derivative financial instruments recognized in net earnings (loss)

     —           283        6        —          289   

Unrealized gain (loss) on derivative financial instruments

     —           (831     525        —          (306

Other (net of tax effect)

     —           —          (2     —          (2
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     —           (548     (2,921     —          (3,469
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     32,786         37,952        35,613        (73,838     32,513   

Comprehensive (income) loss attributable to noncontrolling interest

     —           —          (16,100     12,952        (3,148
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Greenbrier

   $ 32,786       $ 37,952      $ 19,513      $ (60,886   $ 29,365   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

29


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Cash Flows

For the three months ended November 30, 2014

(In thousands, unaudited)

 

(In thousands)    Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ 32,786      $ 38,500      $ 38,534      $ (73,838   $ 35,982   

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:

          

Deferred income taxes

     8,962        (8,264     (91     —          607   

Depreciation and amortization

     455        6,618        5,001        (24     12,050   

Net gain on disposition of equipment

     —          (83     —          —          (83

Stock based compensation expense

     3,411        —          —          —          3,411   

Noncontrolling interest adjustments

     —          —          —          12,952        12,952   

Other

     —          —          152        —          152   

Decrease (increase) in assets:

          

Accounts receivable, net

     (108     25,614        15,362        (33,062     7,806   

Inventories

     —          (11,166     (56,454     (22     (67,642

Leased railcars for syndication

     —          (67,286     —          12,554        (54,732

Other

     3,259        977        475        (2,500     2,211   

Increase (decrease) in liabilities:

          

Accounts payable and accrued liabilities

     27,277        (38,790     4,686        (6,205     (13,032

Deferred revenue

     —          6,118        370        —          6,488   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     76,042        (47,762     8,035        (90,145     (53,830
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Proceeds from sales of assets

     —          2,073        —          —          2,073   

Capital expenditures

     (839     (11,845     (19,024     394        (31,314

Increase in restricted cash

     —          (30     —          —          (30

Investment in unconsolidated affiliates

     (87,576     (4,675     —          89,751        (2,500
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (88,415     (14,477     (19,024     90,145        (31,771
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Net changes in revolving notes with maturities of 90 days or less

     15,000        —          —          —          15,000   

Proceeds from revolving notes with maturities longer than 90 days

     —          —          23,056        —          23,056   

Repayment of revolving notes with maturities longer than 90 days

     —          —          (4,610     —          (4,610

Intercompany advances

     (55,267     55,477        (210     —          —     

Repayments of notes payable

     —          (1,758     —          —          (1,758

Decrease in restricted cash

     —          11,000        —          —          11,000   

Cash distribution to joint venture partner

     —          —          (2,275     —          (2,275

Excess tax benefit from restricted stock awards

     2,970        —          —          —          2,970   

Repurchase of stock

     (21,730     —          —          —          (21,730
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (59,027     64,719        15,961        —          21,653   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     —          (1,015     (995     —          (2,010

Increase (decrease) in cash and cash equivalents

     (71,400     1,465        3,977        —          (65,958

Cash and cash equivalents

          

Beginning of period

     149,747        112        35,057        —          184,916   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 78,347      $ 1,577      $ 39,034      $ —        $ 118,958   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


THE GREENBRIER COMPANIES, INC.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

We operate in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. Our segments are operationally integrated. The Manufacturing segment, operating from facilities in the United States, Mexico and Poland, produces double-stack intermodal railcars, tank cars, conventional railcars, automotive railcar products and marine vessels. The Wheels & Parts segment performs wheel and axle servicing, as well as production of a variety of parts for the railroad industry in North America. The Leasing & Services segment owns approximately 12,200 railcars (6,300 railcars held as equipment on operating leases, 5,300 held as leased railcars for syndication and 600 held as finished goods inventory) and provides management services for approximately 264,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. The GBW Joint Venture segment provides repair services at over 30 locations across North America, including more than 10 tank car repair and maintenance facilities certified by the Association of American Railroads (AAR). The results of these operations were included as part of Earnings (loss) from unconsolidated affiliates as we account for our interest in GBW under the equity method of accounting. We also produce rail castings and tank heads through unconsolidated joint ventures and have a 19.5% ownership stake in a railcar manufacturer in Brazil with an option to acquire an additional 40.5% ownership interest, which can be exercised no later than December 30, 2017.

Our total manufacturing backlog of railcar units as of November 30, 2015 was approximately 36,000 units with an estimated value of $4.14 billion, of which 31,300 units with a value of $3.73 billion are for direct sales and 4,700 units with a value of $0.41 billion are intended for syndications to third parties with a lease attached. Backlog as of November 30, 2014 was 41,200 units with an estimated value of $4.20 billion. No orders in our November 30, 2015 backlog are intended to be placed into our owned lease fleet. Multi-year supply agreements are a part of rail industry practice. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix will be determined in the future, which may impact the dollar amount of backlog. Marine backlog as of November 30, 2015 was $36 million compared to $100 million as of November 30, 2014.

Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Certain orders in backlog are subject to customary documentation and completion of terms. Customer orders contain terms and conditions customary in the industry. Customers may attempt to cancel or modify orders in backlog. In most cases, little variation has been experienced between the quantity ordered and the quantity actually delivered, though the timing of deliveries may be modified from time to time.

In September 2015, we purchased a portfolio of 3,885 railcars from a related party. We intend to sell the railcars and underlying attached leases to third parties in the short-term and therefore have classified these railcars as Leased railcars for syndication on our Consolidated Balance Sheet.

 

31


THE GREENBRIER COMPANIES, INC.

 

Three Months Ended November 30, 2015 Compared to Three Months Ended November 30, 2014

Overview

Revenue, cost of revenue, margin and operating profit presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.

 

(In thousands)    Three Months Ended
November 30,
 
     2015      2014  

Revenue:

     

Manufacturing

   $ 698,661       $ 379,949   

Wheels & Parts

     78,729         86,624   

Leasing & Services

     24,999         28,485   
  

 

 

    

 

 

 
     802,389         495,058   

Cost of revenue:

     

Manufacturing

     533,033         316,037   

Wheels & Parts

     73,002         76,872   

Leasing & Services

     11,589         14,081   
  

 

 

    

 

 

 
     617,624         406,990   

Margin:

     

Manufacturing

     165,628         63,912   

Wheels & Parts

     5,727         9,752   

Leasing & Services

     13,410         14,404   
  

 

 

    

 

 

 
     184,765         88,068   

Selling and administrative

     36,549         33,729   

Net gain on disposition of equipment

     (269      (83
  

 

 

    

 

 

 

Earnings from operations

     148,485         54,422   

Interest and foreign exchange

     5,436         3,141   
  

 

 

    

 

 

 

Earnings before income taxes and earnings from unconsolidated affiliates

     143,049         51,281   

Income tax expense

     (44,719      (16,054
  

 

 

    

 

 

 

Earnings before earnings from unconsolidated affiliates

     98,330         35,227   

Earnings from unconsolidated affiliates

     383         755   
  

 

 

    

 

 

 

Net earnings

     98,713         35,982   

Net earnings attributable to noncontrolling interest

     (29,280      (3,196
  

 

 

    

 

 

 

Net earnings attributable to Greenbrier

   $ 69,433       $ 32,786   
  

 

 

    

 

 

 

Diluted earnings per common share

   $ 2.15       $ 1.01   

Performance for our segments is evaluated based on operating profit. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes.

 

(In thousands)    Three Months Ended
November 30,
 
     2015      2014  

Operating profit (loss):

     

Manufacturing

   $ 153,704       $ 52,051   

Wheels & Parts

     3,403         7,932   

Leasing & Services

     9,958         11,042   

Corporate

     (18,580      (16,603
  

 

 

    

 

 

 
   $ 148,485       $ 54,422   
  

 

 

    

 

 

 

 

32


THE GREENBRIER COMPANIES, INC.

 

Consolidated Results

 

(In thousands)    Three Months Ended
November 30,
    Increase
(Decrease)
    %
Change
 
     2015     2014      

Revenue

   $ 802,389      $ 495,058      $ 307,331        62.1

Cost of revenue

   $ 617,624      $ 406,990      $ 210,634        51.8

Margin (%)

     23.0     17.8     5.2     *   

Net earnings attributable to Greenbrier

   $ 69,433      $ 32,786      $ 36,647        111.8

 

* Not meaningful

Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period which causes fluctuations in our results of operations.

The 62.1% increase in revenue for the three months ended November 30, 2015 as compared to the three months ended November 30, 2014 was primarily due to an 83.9% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily due to a 73% increase in the volume of deliveries with a mix that had a higher average selling price. These higher deliveries were in response to strong demand in the freight car market. This was partially offset by a 9.1% decrease in Wheels & Parts revenue which was primarily a result of lower wheel set and component volumes due to a decrease in demand and a decrease in scrap metal pricing. In addition, the increase in Manufacturing revenue was partially offset by a 12.2% decrease in Leasing & Services revenue which was the result of the prior year including a sale of railcars that we purchased from a third party.

The 51.8% increase in cost of revenue for the three months ended November 30, 2015 as compared to the three months ended November 30, 2014 was due to a 68.7% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was due to an increase of 73% in the volume of railcar deliveries with a mix that had a higher average labor and material content. This was partially offset by improved production efficiencies. The increase in Manufacturing cost of revenue was partially offset by a 5.0% decrease in Wheels & Parts cost of revenue primarily due to lower wheel set, component and parts costs associated with decreased volumes. In addition, the increase in Manufacturing cost of revenue was partially offset by a 17.7% decrease in Leasing & Services cost of revenue primarily due to the prior year including costs associated with a sale of railcars that we purchased from a third party.

Margin as a percentage of revenue was 23.0% and 17.8% for the three months ended November 30, 2015 and 2014, respectively. The overall 5.2% increase in margin percentage was due to an increase in Manufacturing and Leasing & Services margin. Manufacturing margin increased to 23.7% from 16.8% primarily due to favorable pricing and improved production efficiencies. Leasing & Services margin increased to 53.6% from 50.6% primarily as a result of a higher average volume of rent-producing leased railcars for syndication in the current year and the prior year including a sale of railcars purchased from a third party which had a lower margin percentage. These were partially offset by a decrease in Wheels & Parts margin to 7.3% from 11.3% which was primarily the result of lower wheel set and component volumes and a decrease in scrap metal pricing.

The $36.6 million increase in net earnings for the three months ended November 30, 2015 as compared to the three months ended November 30, 2014 was primarily attributable to an increase in margin.

 

33


THE GREENBRIER COMPANIES, INC.

 

Manufacturing Segment

 

(In thousands)    Three Months Ended
November 30,
    Increase
(Decrease)
    %
Change
 
     2015     2014      

Revenue

   $ 698,661      $ 379,949      $ 318,712        83.9

Cost of revenue

   $ 533,033      $ 316,037      $ 216,996        68.7

Margin (%)

     23.7     16.8     6.9     *   

Operating profit ($)

   $ 153,704      $ 52,051      $ 101,653        195.3

Operating profit (%)

     22.0     13.7     8.3     *   

Deliveries

     6,900        4,000        2,900        72.5

 

* Not meaningful

Manufacturing revenue was $698.7 million and $379.9 million for the three months ended November 30, 2015 and 2014, respectively. Manufacturing revenue increased $318.7 million or 83.9% primarily due to a 73% increase in the volume of deliveries with a mix which had a higher average selling price as compared to the prior comparable period as a result of favorable pricing and a change in product mix. These higher deliveries were in response to strong demand in the freight car market.

Manufacturing cost of revenue was $533.0 million and $316.0 million for the three months ended November 30, 2015 and 2014, respectively. Cost of revenue increased $217.0 million or 68.7% due to an increase of 73% in the volume of railcar deliveries with a mix which had a higher average labor and material content. This was partially offset by improved production efficiencies.

Manufacturing margin as a percentage of revenue for the three months ended November 30, 2015 was 23.7% compared to 16.8% for the three months ended November 30, 2014. The 6.9% increase in margin was primarily due to favorable pricing and improved production efficiencies.

Manufacturing operating profit was $153.7 million or 22.0% of revenue for the three months ended November 30, 2015 and $52.1 million or 13.7% of revenue for the three months ended November 30, 2014. The $101.7 million or 195.3% increase in operating profit was primarily attributed to an increase in margin.

 

34


THE GREENBRIER COMPANIES, INC.

 

Wheels & Parts Segment

 

(In thousands)    Three Months Ended
November 30,
    Increase
(Decrease)
    %
Change
 
     2015     2014      

Revenue

   $ 78,729      $ 86,624      $ (7,895     (9.1 %) 

Cost of revenue

   $ 73,002      $ 76,872      $ (3,870     (5.0 %) 

Margin (%)

     7.3     11.3     (4.0 %)      *   

Operating profit ($)

   $ 3,403      $ 7,932      $ (4,529     (57.1 %) 

Operating profit (%)

     4.3     9.2     (4.9 %)      *   

 

* Not meaningful

Wheels & Parts revenue was $78.7 million and $86.6 million for the three months ended November 30, 2015 and 2014, respectively. The $7.9 million or 9.1% decrease in revenue was primarily a result of lower wheel set, component and parts volumes due to a decrease in demand and a decrease in scrap metal pricing.

Wheels & Parts cost of revenue was $73.0 million and $76.9 million for the three months ended November 30, 2015 and 2014, respectively. Cost of revenue decreased $3.9 million or 5.0% primarily due to lower wheel set, component and parts costs associated with decreased volumes.

Wheels & Parts margin as a percentage of revenue for the three months ended November 30, 2015 was 7.3% compared to 11.3% for the three months ended November 30, 2014. The decrease in margin was due to lower wheel set and component volumes and a decrease in scrap metal pricing. These were partially offset by a more favorable parts product mix.

Wheels & Parts operating profit was $3.4 million or 4.3% of revenue for the three months ended November 30, 2015 and $7.9 million or 9.2% of revenue for the three months ended November 30, 2014. The $4.5 million or 57.1% decrease in operating profit was primarily attributed to a decrease in margin.

 

35


THE GREENBRIER COMPANIES, INC.

 

Leasing & Services Segment

 

(In thousands)    Three Months Ended
November 30,
    Increase
(Decrease)
    %
Change
 
     2015     2014      

Revenue

   $ 24,999      $ 28,485      $ (3,486     (12.2 %) 

Cost of revenue

   $ 11,589      $ 14,081      $ (2,492     (17.7 %) 

Margin (%)

     53.6     50.6     3.0     *   

Operating profit ($)

   $ 9,958      $ 11,042      $ (1,084     (9.8 %) 

Operating profit (%)

     39.8     38.8     1.0     *   

 

* Not meaningful

Leasing & Services revenue was $25.0 million and $28.5 million for the three months ended November 30, 2015 and 2014, respectively. The $3.5 million or 12.2% decrease in revenue was primarily the result of the prior year including a sale of railcars that we purchased from a third party. These railcars were not manufactured by our company, but rather purchased from a third party with a lease attached, with the intent to resell them. The gross proceeds from the sale of these railcars with leases attached were recorded as revenue and the cost of purchasing these railcars from a third party was recorded in cost of sales in the prior year. The decrease in revenue was partially offset by higher average volume of rent-producing leased railcars for syndication, which are held short term and classified as Leased railcars for syndication on our Consolidated Balance Sheet.

Leasing & Services cost of revenue was $11.6 million and $14.1 million for the three months ended November 30, 2015 and 2014, respectively. Cost of revenue decreased $2.5 million or 17.7% primarily due to the prior year including costs associated with the sale of railcars that we purchased from a third party. This was partially offset by higher transportation costs.

Leasing & Services margin as a percentage of revenue for the three months ended November 30, 2015 was 53.6% compared to 50.6% for the three months ended November 30, 2014. The 3.0% increase was primarily the result of a higher average volume of rent-producing leased railcars for syndication. In addition the increase was attributed to the prior year including a lower margin percentage on the syndication of railcars purchased from a third party.

Leasing & Services operating profit was $10.0 million or 39.8% of revenue for the three months ended November 30, 2015 and $11.0 million or 38.8% of revenue for the three months ended November 30, 2014. The $1.1 million or 9.8% decrease in operating profit was primarily attributed to a decrease in margin.

The percentage of owned units on lease at November 30, 2015 was 89.0% compared to 98.1% at November 30, 2014.

 

36


THE GREENBRIER COMPANIES, INC.

 

GBW Joint Venture Segment

GBW, an unconsolidated 50/50 joint venture, generated total revenue of $96.0 million and $82.5 million for the three months ended November 30, 2015 and 2014, respectively. The increase in revenue of $13.5 million was primarily due to a favorable change in mix, an increase in volume and favorable pricing.

GBW margin as a percentage of revenue for the three months ended November 30, 2015 was 9.2% compared to 6.0% for the three months ended November 30, 2014. The increase was primarily attributed to an increase in efficiencies in the current year. In addition, the prior year included integration and startup costs.

To reflect our 50% share of GBW’s results, we recorded earnings of $0.9 million and $0.4 million in Earnings from unconsolidated affiliates for the three months ended November 30, 2015 and 2014, respectively.

Selling and Administrative Expense

 

(In thousands)    Three Months Ended
November 30,
     Increase
(Decrease)
     %
Change
 
     2015      2014        

Selling and administrative expense

   $ 36,549       $ 33,729       $ 2,820         8.4

Selling and administrative expense was $36.5 million or 4.6% of revenue for the three months ended November 30, 2015 compared to $33.7 million or 6.8% of revenue for the prior comparable period. The $2.8 million increase was primarily attributed to a $5.1 million increase in employee-related costs including long-term and short-term incentive compensation and additional headcount based on current levels of activity. This was partially offset by the prior year including $1.9 million in legal, accounting and consulting costs associated with the previously disclosed investigation at our Concarril manufacturing facility.

Net Gain on Disposition of Equipment

Net gain on disposition of equipment was $0.3 million for the three months ended November 30, 2015, compared to $0.1 million for the prior comparable period. Assets from our lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity. All of the current year’s gain and prior year’s gain was realized on the disposition of leased assets.

 

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THE GREENBRIER COMPANIES, INC.

 

Other Costs

Interest and foreign exchange expense was composed of the following:

 

(In thousands)    Three Months Ended
November 30,
     Increase  
     2015      2014      (Decrease)  

Interest and foreign exchange:

        

Interest and other expense

   $ 4,858       $ 4,800       $ 58   

Foreign exchange (gain) loss

     578         (1,659      2,237   
  

 

 

    

 

 

    

 

 

 
   $ 5,436       $ 3,141       $ 2,295   
  

 

 

    

 

 

    

 

 

 

The $2.3 million increase in interest and foreign exchange expense from the prior comparable period was primarily attributed to a foreign exchange loss for the three months ended November 30, 2015 compared to a foreign exchange gain for the three months ended November 30, 2014. The change in foreign exchange (gain) loss was primarily attributed to the change in the Mexican Peso relative to the U.S. Dollar. The three months ended November 30, 2015 also included the write off of debt issuance costs associated with the replacement of our $290.0 million revolving line of credit with our new $550.0 million line of credit in October 2015. These were partially offset by a decrease in interest expense as a result of lower average borrowings as compared to the prior year.

Income Tax

The tax rate for both the three months ended November 30, 2015 and 2014 was 31.3%. The current year includes the impact of discrete items which increased the tax rate during the quarter from the projected tax rate.

The tax rate can fluctuate period-to-period due to changes in the projected mix of foreign and domestic pre-tax earnings and due to discrete tax items booked within the interim period. It can also fluctuate with changes in the proportion of projected pre-tax earnings attributable to our Mexican railcar manufacturing joint venture because the joint venture is predominantly treated as a partnership for tax purposes and, as a result, the partnership’s entire pre-tax earnings are included in Earnings before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax expense.

Earnings From Unconsolidated Affiliates

Earnings from unconsolidated affiliates was $0.4 million and $0.8 million for the three months ended November 30, 2015 and 2014, respectively. Earnings from unconsolidated affiliates primarily included our share of after-tax results from our castings joint venture and our share of after-tax results from our GBW Joint Venture including eliminations associated with GBW transactions with other Greenbrier entities. In addition, the three months ended November 30, 2015 included our share of after-tax results from our 19.5% ownership stake in a railcar manufacturer in Brazil.

Noncontrolling Interest

Net earnings attributable to noncontrolling interest was $29.3 million for the three months ended November 30, 2015 compared to $3.2 million in the prior comparable period. These amounts primarily represent our joint venture partner’s share in the results of operations of our Mexican railcar manufacturing joint venture, adjusted for intercompany sales. The increase of $26.1 million from the prior year is primarily a result of the joint venture operating at higher production rates and margins.

 

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THE GREENBRIER COMPANIES, INC.

 

Liquidity and Capital Resources

 

(In thousands)    Three Months Ended
November 30,
 
     2015      2014  

Net cash used in operating activities

   $ (63,491    $ (53,830

Net cash provided by (used in) investing activities

     23,559         (31,771

Net cash provided by financing activities

     71,605         21,653   

Effect of exchange rate changes

     (6,970      (2,010
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 24,703       $ (65,958
  

 

 

    

 

 

 

We have been financed through cash generated from operations and borrowings. At November 30, 2015, cash and cash equivalents were $197.6 million, an increase of $24.7 million from $172.9 million at August 31, 2015.

Cash used in operating activities was $63.5 million for the three months ended November 30, 2015 compared to $53.8 million for the three months ended November 30, 2014. The change from the prior year was primarily due to higher earnings, a change in working capital needs and an increase in leased railcars for syndication.

Cash provided by and used in investing activities primarily related to capital expenditures net of proceeds from the sale of assets. Cash provided by investing activities for the three months ended November 30, 2015 was $23.6 million compared to cash used in investing activities of $31.8 million for the three months ended November 30, 2014.

Capital expenditures totaled $15.6 million and $31.3 million for the three months ended November 30, 2015 and 2014. Proceeds from the sale of assets, which primarily related to sales of railcars from our lease fleet within Leasing & Services, were approximately $41.4 million and $2.1 million for the three months ended November 30, 2015 and 2014. Proceeds from the sale of assets for the three months ended November 30, 2015 included approximately $31.6 million of equipment that was transferred from Leased railcars for syndication to Equipment on operating leases, net and sold pursuant to a sale and leaseback.

Approximately $13.4 million and $21.5 million of capital expenditures for the three months ended November 30, 2015 and 2014 were attributable to Manufacturing operations. Capital expenditures for Manufacturing are expected to be approximately $55.0 million in 2016 and primarily relate to maintenance and enhancements of our existing manufacturing facilities.

Approximately $1.2 million and $8.0 million of capital expenditures for the three months ended November 30, 2015 and 2014 were attributable to Leasing & Services operations and corporate. Leasing & Services and corporate capital expenditures for 2016 are expected to be approximately $30.0 million. Proceeds from sales of leased railcar equipment are expected to be approximately $85.0 million for 2016. Assets from our lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity.

Wheels & Parts capital expenditures for the three months ended November 30, 2015 and 2014 were $1.0 million and $1.8 million and are expected to be approximately $9.0 million in 2016 for maintenance and enhancements of our existing facilities.

Cash provided by financing activities was $71.6 million for the three months ended November 30, 2015 compared to $21.7 million for the three months ended November 30, 2014. The change in cash provided by financing activities was primarily attributed to an increase in proceeds from debt, net of repayments.

A quarterly dividend of $0.20 per share was declared on January 6, 2016.

 

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THE GREENBRIER COMPANIES, INC.

 

Since October 2013, the Board of Directors has authorized our company to repurchase in aggregate up to $225 million of our common stock. During the three months ended November 30, 2015 and 2014, we purchased a total of 521,626 and 378,695 shares for approximately $19.1 million and $23.1 million, respectively. As of November 30, 2015 we had cumulatively repurchased 2,673,165 shares for approximately $123.7 million and had $101.3 million available under the share repurchase program.

Senior secured credit facilities, consisting of three components, aggregated to $625.1 million as of November 30, 2015. We had an aggregate of $289.7 million available to draw down under committed credit facilities as of November 30, 2015. This amount consists of $216.5 million available on the North American credit facility, $15.1 million on the European credit facilities and $58.1 million on the Mexican joint venture credit facilities.

As of November 30, 2015, a $550.0 million revolving line of credit secured by substantially all of our assets in the U.S. not otherwise pledged as security for term loans, maturing October 2020, was available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this facility bear interest at LIBOR plus 1.75% or Prime plus 0.75% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.

As of November 30, 2015, lines of credit totaling $15.1 million secured by certain of our European assets, with various variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.3%, were available for working capital needs of the European manufacturing operation. European credit facilities are continually being renewed. Currently these European credit facilities have maturities that range from February 2016 through June 2017.

As of November 30, 2015 our Mexican joint venture had three lines of credit totaling $60.0 million. The first line of credit provides up to $10.0 million and is secured by certain of the joint venture’s accounts receivable and inventory. Advances under this facility bear interest at LIBOR plus 2.5%. The Mexican joint venture will be able to draw amounts available under this facility through June 2016. The second line of credit provides up to $30.0 million and is fully guaranteed by us and our joint venture partner. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican joint venture will be able to draw against this facility through January 2019. The third line of credit provides up to $20.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican joint venture will be able to draw amounts available under this facility through August 2017.

As of November 30, 2015, outstanding commitments under the senior secured credit facilities consisted of $80.1 million in letters of credit and $162.0 million in revolving notes under the North American credit facility and $1.9 million outstanding in revolving notes under the Mexican joint venture credit facilities.

The revolving and operating lines of credit, along with notes payable, contain covenants with respect to us and our various subsidiaries, the most restrictive of which, among other things, limit our ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into sale leaseback transactions; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all our assets; and enter into new lines of business. The covenants also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest plus rent) coverage.

We may from time to time seek to repurchase or otherwise retire or exchange securities, including outstanding borrowings and equity securities, and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include open market repurchases, unsolicited or solicited privately negotiated transactions or other retirements, repurchases or exchanges. Such repurchases or exchanges, if any, will depend on a number of factors, including, but not limited to, prevailing market conditions, trading levels of our debt, our liquidity requirements and contractual restrictions, if applicable.

 

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THE GREENBRIER COMPANIES, INC.

 

We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency, we enter into foreign currency forward exchange contracts with established financial institutions to protect the margin on a portion of foreign currency sales in firm backlog. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty non-performance.

As of November 30, 2015, the Mexican joint venture had $3.0 million of third party debt, of which we and our joint venture partner have each guaranteed approximately $1.5 million.

In accordance with customary business practices in Europe, we have $3.8 million in third party warranty guarantee facilities as of November 30, 2015. To date no amounts have been drawn under these guarantee facilities.

We made $0.6 million in cash contributions and $1.25 million in loans to GBW, an unconsolidated 50/50 joint venture with Watco, for the three months ended November 30, 2015. We expect to loan additional amounts of approximately $3.75 million during 2016. We are likely to make additional capital contributions or loans to GBW in the future. As of November 30, 2015, we had a $32.7 million note receivable balance from GBW.

We expect existing funds and cash generated from operations, together with proceeds from financing activities including borrowings under existing credit facilities and long-term financings, to be sufficient to fund dividends, working capital needs, additional investments in GBW, planned capital expenditures and expected debt repayments during the next twelve months.

Off Balance Sheet Arrangements

We do not currently have off balance sheet arrangements that have or are likely to have a material current or future effect on our Consolidated Financial Statements.

 

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THE GREENBRIER COMPANIES, INC.

 

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.

Income taxes - For financial reporting purposes, income tax expense is estimated based on amounts anticipated to be reported on tax return filings. Those anticipated amounts may change from when the financial statements are prepared to when the tax returns are filed. Further, because tax filings are subject to review by taxing authorities, there is risk that a position taken in preparation of a tax return may be challenged by a taxing authority. If a challenge is successful, differences in tax expense or between current and deferred tax items may arise in future periods. Any material effect of such differences would be reflected in the financial statements when management considers the effect probable of occurring and the amount reasonably estimable. Valuation allowances reduce deferred tax assets to amounts more likely than not that will be realized based on information available when the financial statements are prepared. This information may include estimates of future income and other assumptions that are inherently uncertain.

Maintenance obligations - We are responsible for maintenance on a portion of the managed and owned lease fleet under the terms of maintenance obligations defined in the underlying lease or management agreement. The estimated maintenance liability is based on maintenance histories for each type and age of railcar. These estimates involve judgment as to the future costs of repairs and the types and timing of repairs required over the lease term. As we cannot predict with certainty the prices, timing and volume of maintenance needed in the future on railcars under long-term leases, this estimate is uncertain and could be materially different from maintenance requirements. The liability is periodically reviewed and updated based on maintenance trends and known future repair or refurbishment requirements. These adjustments could be material due to the inherent uncertainty in predicting future maintenance requirements.

Warranty accruals - Warranty costs to cover a defined warranty period are estimated and charged to operations. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. These estimates are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period to be material.

Environmental costs - At times we may be involved in various proceedings related to environmental matters. We estimate future costs for known environmental remediation requirements and accrue for them when it is probable that we have incurred a liability and the related costs can be reasonably estimated based on currently available information. If further developments in or resolution of an environmental matter result in facts and circumstances that are significantly different than the assumptions used to develop these reserves, the accrual for environmental remediation could be materially understated or overstated. Adjustments to these liabilities are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues or when expenditures for which reserves are established are made. Due to the uncertain nature of environmental matters, there can be no assurance that we will not become involved in future litigation or other proceedings or, if we were found to be responsible or liable in any litigation or proceeding, that such costs would not be material to us.

 

42


THE GREENBRIER COMPANIES, INC.

 

Revenue recognition - Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Railcars are generally manufactured, repaired or refurbished and wheels and parts produced under firm orders from third parties. Revenue is recognized when these products or services are completed, accepted by an unaffiliated customer and contractual contingencies removed. Certain leases are operated under car hire arrangements whereby revenue is earned based on utilization, car hire rates and terms specified in the lease agreement. Car hire revenue is reported from a third party source two months in arrears; however, such revenue is accrued in the month earned based on estimates of use from historical activity and is adjusted to actual as reported. These estimates are inherently uncertain as they involve judgment as to the estimated use of each railcar. Adjustments to actual have historically not been significant. Revenues from construction of marine barges are either recognized on the percentage of completion method during the construction period or on the completed contract method based on the terms of the contract. Under the percentage of completion method, judgment is used to determine a definitive threshold against which progress towards completion can be measured to determine timing of revenue recognition. Under the percentage of completion method, revenue is recognized based on the progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. Under the completed contract method, revenue is not recognized until the project has been fully completed.

We will periodically sell railcars with leases attached to financial investors. Revenue and cost of revenue associated with railcars that the Company has manufactured are recognized in Manufacturing once sold. Revenue and cost of revenue associated with railcars which were obtained from a third party and subsequently sold are recognized in Leasing & Services. In addition we will often perform management or maintenance services at market rates for these railcars. Pursuant to the guidance in Accounting Standards Codification (ASC) 840-20-40, we evaluate the terms of any remarketing agreements and any contractual provisions that represent retained risk and the level of retained risk based on those provisions. We determine whether the level of retained risk exceeds 10% of the individual fair value of the railcars with leases attached that are delivered. For any contracts with multiple elements (i.e. railcars, maintenance, management services, etc.) we allocate revenue among the deliverables primarily based upon objective and reliable evidence of the fair value of each element in the arrangement. If objective and reliable evidence of fair value of any element is not available, we will use the element’s estimated selling price for purposes of allocating the total arrangement consideration among the elements.

Impairment of long-lived assets - When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets are evaluated for impairment. If the forecast undiscounted future cash flows are less than the carrying amount of the assets, an impairment charge to reduce the carrying value of the assets to fair value is recognized in the current period. These estimates are based on the best information available at the time of the impairment and could be materially different if circumstances change. If the forecast undiscounted future cash flows exceeded the carrying amount of the assets it would indicate that the assets were not impaired.

Goodwill and acquired intangible assets - We periodically acquire businesses in purchase transactions in which the allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires management to make estimates and assumptions. These estimates affect the amount of future period amortization and possible impairment charges.

Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third quarter. Goodwill and indefinite-lived intangible assets are also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. When changes in circumstances, such as a decline in the market price of our common stock, changes in demand or in the numerous variables associated with the judgments, assumptions and estimates made in assessing the appropriate valuation of goodwill indicate the carrying amount of certain indefinite lived assets may not be recoverable, the assets are evaluated for impairment. Among other things, our assumptions used in the valuation of goodwill include growth of revenue and margins, market multiples, discount rates and increased cash flows over time. If actual operating results were to differ from these assumptions, it may result in an impairment of our goodwill.

 

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THE GREENBRIER COMPANIES, INC.

 

The provisions of ASC 350, Intangibles - Goodwill and Other, require that we perform a two-step impairment test on goodwill. In the first step, we compare the fair value of each reporting unit with its carrying value. We determine the fair value of our reporting units based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. The second step of the goodwill impairment test is required only in situations where the carrying value of the reporting unit exceeds its fair value as determined in the first step. In the second step, we would compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill. The goodwill balance relates to the Wheels & Parts segment.

 

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THE GREENBRIER COMPANIES, INC.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency of each entity, we enter into foreign currency forward exchange contracts to protect revenue or margin on a portion of forecast foreign currency sales. At November 30, 2015 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euro and U.S. Dollars and for the purchase of U.S. Dollars and the sale of Saudi Riyal aggregated to $458.8 million. Because of the variety of currencies in which purchases and sales are transacted and the interaction between currency rates, it is not possible to predict the impact a movement in a single foreign currency exchange rate would have on future operating results.

In addition to exposure to transaction gains or losses, we are also exposed to foreign currency exchange risk related to the net asset position of our foreign subsidiaries. At November 30, 2015, net assets of foreign subsidiaries aggregated $51.8 million and a 10% strengthening of the U.S. Dollar relative to the foreign currencies would result in a decrease in equity of $5.2 million, or 0.7% of Total equity - Greenbrier. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. Dollar.

Interest Rate Risk

We have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $94.8 million of variable rate debt to fixed rate debt. As a result, we are exposed to interest rate risk relating to our revolving debt and a portion of term debt, which are at variable rates. At November 30, 2015, 47% of our outstanding debt had fixed rates and 53% had variable rates. At November 30, 2015, a uniform 10% increase in variable interest rates would result in approximately $0.7 million of additional annual interest expense.

 

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THE GREENBRIER COMPANIES, INC.

 

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended November 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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THE GREENBRIER COMPANIES, INC.

 

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There is hereby incorporated by reference the information disclosed in Note 12 to Consolidated Financial Statements, Part I of this quarterly report.

Item 1A. Risk Factors

This Form 10-Q should be read in conjunction with the risk factors and information disclosed in our Annual Report on Form 10-K for the year ended August 31, 2015. There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended August 31, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Since October 2013, the Board of Directors has authorized the Company to repurchase in aggregate up to $225 million of the Company’s common stock. The program may be modified, suspended or discontinued at any time without prior notice and currently has an expiration date of January 1, 2018. Under the share repurchase program, shares of common stock may be purchased on the open market or through privately negotiated transactions from time-to-time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The share repurchase program does not obligate the Company to acquire any specific number of shares in any period.

Shares repurchased under the share repurchase program during the three months ended November 30, 2015 were as follows:

 

Period

   Total Number of
Shares Purchased
     Average Price
Paid Per Share
(Including
Commissions)
     Total Number of
Shares Purchased
as Part of
Publically
Announced Plans
or Programs
     Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs 1
 

September 1, 2015 – September 30, 2015

     243,594       $ 36.63         243,594       $ 11,439,853   

October 1, 2015 – October 31, 2015

     257,858       $ 36.28         257,858       $ 102,085,163   

November 1, 2015 – November 30, 2015

     20,174       $ 39.67         20,174       $ 101,284,774   
  

 

 

       

 

 

    
     521,626            521,626      
  

 

 

       

 

 

    

 

1  In October 2015, the Board of Directors authorized a $100 million increase to the share repurchase program.

 

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THE GREENBRIER COMPANIES, INC.

 

Item 6. Exhibits

(a) List of Exhibits:

 

10.1    Termination and Future Sharing Agreement, dated September 30, 2015, between Greenbrier Leasing Company and WLR-Greenbrier Rail Inc.*
10.2    Purchase and Sale Agreement, dated September 30, 2015, between Greenbrier Leasing Company and WL Ross-Greenbrier Rail I LLC*
31.1    Certification pursuant to Rule 13a – 14 (a).
31.2    Certification pursuant to Rule 13a – 14 (a).
32.1    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101    The following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended November 30, 2015, formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements.

 

* Certain confidential information contained in these Exhibits was omitted by means of redacting a portion of the text and replacing it with brackets and asterisks ([***]). These Exhibits have been filed separately with the SEC without the redaction pursuant to a Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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THE GREENBRIER COMPANIES, INC.

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      THE GREENBRIER COMPANIES, INC.
Date: January 7, 2016       By:   

/s/ Mark J. Rittenbaum

Mark J. Rittenbaum

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

Date: January 7, 2016       By:   

/s/ Adrian J. Downes

Adrian J. Downes

Senior Vice President and

Chief Accounting Officer

(Principal Accounting Officer)

 

49